Reading 23: Multinational Operations-LOS f 习题精选 methods, 2010, center, accounting, class

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Session 6: Financial Reporting and Analysis: Post-Employment and
Share-Based Compensation and Multinational Operations
Reading 23: Multinational Operations

LOS f: Illustrate and analyze alternative accounting methods for subsidiaries operating in hyperinflationary economies.

 

 

 

Which of the following asset or liability values is likely to be the most understated in a hyperinflationary economy if translation occurs under the all-current method?

A) A plant purchased several years ago.

B) Accounts receivable.

C) Dividends payable.

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The accounts receivable and dividends payable will each have book values that are closer to their market values than a plant purchased many years ago.

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Which of the following best describes the situation in a hyperinflationary economy? Purchasing power of the foreign currency will:

A) dramatically appreciate and the foreign currency will be rapidly appreciating against the reporting currency.

B) quickly deteriorate and the foreign currency will be rapidly appreciating against the reporting currency.

C) quickly deteriorate and the foreign currency will be rapidly depreciating against the reporting currency.

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Purchasing power and foreign currency will depreciate.

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Which translation method should be used under a hyperinflationary economy?

A) Temporal, because all non-monetary accounts are re-measured at the historical rate.

B) All-current, because dividends are translated at the rate that applied when they were issued.

C) Monetary/non-monetary, because all monetary accounts are translated at the historical rate.

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The temporal method is more appropriate because all non-monetary accounts are remeasured at the historical rate.

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For a subsidiary in a hyperinflationary economy, the functional currency should be the:

A) Local currency.

B) Subsidiary's operating currency.

C) Parent's currency.

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The functional currency should be the parent's currency.

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A hyperinflationary economy is typically defined as one that has:

A) cumulative inflation that exceeds 100% over a three-year period.

B) an inflation rate that exceeds 10% per year for three consecutive years.

C) cumulative inflation that exceeds 100% over a twelve-year period.

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The typical definition is that cumulative inflation exceeds 100% over a three-year period.

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In reality, what best describes the real value of non-monetary assets and liabilities in a hyperinflationary environment?

A) Typically not affected because their local currency-denominated values decrease to offset the impact of inflation.

B) Typically not affected because their local currency-denominated values increase to offset the impact of inflation.

C) All non-monetary accounts are re-measured at the current rate.

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Typically not affected because their local currency-denominated values increase to offset the impact of inflation (i.e., real estate values typically rise with inflation).

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In a hyperinflationary economy, translation under the all-current method will most likely result in relatively:

A) low balance sheet values for long term liabilities.

B) high balance sheet values for long term assets.

C) high translation gains.

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In a hyperinflationary economy, translation under the all-current method will most likely result in relatively low balance sheet values for assets and liabilities. Translation losses will also occur.

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The temporal method (remeasurement) is preferred to the all-current method (translation) in hyperinflationary economies because remeasurement:

A) is easier than translation to perform under hyperinflation.

B) results in non-monetary asset values that are a better proxy for the economic values of those assets (versus the all-current method).

C) provides better conversions of subsidiary revenues.

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Remeasurement results in non-monetary asset values that are a better proxy for the economic values of those assets than those obtained under the all-current method. Both remeasurement and translation convert revenues and SG&A at the average rate so there could be no clear preference when considering these measures.